Group Life Assurance benefits will pay a lump sum benefit upon death of an insured employee. However, what many people overlook is that traditionally Group Life schemes are written under registered pension scheme legislation and as such, there are instances where an individual can invalidate their pension protection by joining such a scheme.

The Lifetime Allowance (LTA) was created when pension simplification legislation was implemented in April 2006. Benefits which count towards the LTA include registered pension and lump sum death benefits from registered Group Life Assurance schemes. Historically, the LTA was £1.8m but since April 2012, this has been reduced a number of times. For 2020/21, the LTA is £1,073,100. Benefits which exceed the LTA are subject to a tax charge of up to 55%.

Individuals with benefits above or approaching the LTA can apply for pension protection from the HMRC. Since the introduction of the LTA, there are several different types of pension protection which have become available to enable individuals to protect the value of benefits that they have built up (and future benefits that may accrue) from tax charges. If pension protection is granted, these protections are subject to different conditions and strict rules and if broken, the protection will be withdrawn.

A potential issue with registered group life arrangements is when an employee with Pension Protection joins a ‘new’ registered group life scheme due to the fact that they have joined a new employer, the protection may be voided, depending on the type of protection they have and when this was granted. An employer may not be aware of employees who have pension protection in place, as this is arranged on an individual basis. A Group Life scheme is classed as a ‘new’ arrangement if the Pension Scheme Tax Reference (PSTR) number which applies to the scheme changes or a new trust is arranged for a scheme.

The alternative, an ‘Excepted’ Group Life scheme, provide lump sum death benefits outside of the registered pension scheme environment. Therefore any benefits paid are not currently included in the calculation of the LTA. You may wish to consider setting up an Excepted scheme for a defined section of your membership. There will usually be no difference in cost for this type of arrangement and you would need to execute a trust deed prior to implementing the insurance policy.

There are advantages and disadvantages of the way a scheme can be established and managed over another. There are some differences between Registered and Excepted schemes, which include potential tax charges in certain scenarios on an Excepted scheme. If you would like to discuss the different options available and which may be suitable for your business, please do get in touch.

The CBILS has been designed by the government to support the continued provision of finance to smaller businesses (SME’s) who have and are experiencing lost or deferred revenues, leading to disruptions to their cashflow as a result of the Covid-19 outbreak. The scheme supports a wide range of business finance products, including terms loans, overdrafts, invoice finance and asset finance facilities.

Without this scheme many SME’s would struggle to operate and possibly cease to trade meaning that this intervention made by the government has been much needed. What would happen to the business however if one or more or the business owners passed away or is diagnosed with a critical illness? In a normal circumstance the loan will still need to be repaid and the funds used for this purpose will eat into any potential value in the business that tends to be passed across to family members in the form of a shareholding or cash sum.

As a result, should some form of Business Loan protection be considered?

What is Business Loan Protection?

Business Loan Protection helps the business pay any outstanding borrowings such as a loan or commercial mortgage, should the person(s) covered die or become diagnosed with a specified critical illness. In some situations insurers are also able to consider including cover for overdrafts or director loan accounts.

How does Business Loan Protection Work?

Business Loan Protection is either life assurance or life assurance and critical illness cover written on the life of the key individual or individuals so that any money due can be used to pay towards any outstanding debt or loan. The money will be paid to the business where it is a company, Limited Liability Partnership (LLP) or Scottish Partnership. Where the business is a partnership, the policy will be written on an own life basis and may be placed in trust for the other partners.

How much cover do I need?

The level of cover reflects the amount needed to pay the outstanding borrowings. The policy should be set up to reflect the terms of the borrowings and could be on a level or decreasing basis.

There are various issues to consider around Business Loan Protection and these are highlighted below:

  • What would you do in the event of the loss of the individual or individuals who have guaranteed a loan?
  • What would you do if an overdraft, loan or commercial mortgage is unable to be paid due to the loss of a shareholder or director?
  • Director loan accounts should be repaid on death – where will this money come from?

If Business Loan Protection Insurance that you are looking to discuss, please contact Wingate Benefit Solutions on 01883 332260 or at and we will be able to help.

The outbreak of Coronavirus has left many people asking about life assurance and whether their existing cover is sufficient in the event of the unthinkable happening. More often than not there are no issues with cover being satisfactory, but we would always recommend that if you have concerns, you should ask your adviser or insurer for guidance/advice.

For most people, there is an element of cover in place whether this be through a personal arrangement or through cover provided by your employer however as a business owner, what provisions have you taken for yourself?

If you pass away, how do any business loans in place get repaid?

If you pass away, what legacy is left for your family?

If your top salesperson, account manager, product designer or any other key person passes away, what effect would this have on the income that the business receives?

It may well be that after these questions have been asked of yourself, you feel that no provision is required and that you are happy to take the risk of not putting cover in place and this is absolutely fine.

It may also be that after these questions have been asked of yourself that you want to review your existing provisions and to understand the cost of putting all or some of this cover in case.

At Wingate, we offer a fee free review service which allows us to work with business owners to understand what cover may be required, how this cover could be implemented and importantly what price this cover may cost. If you feel as though a review or conversation may be beneficial, please contact us at Wingate on or (T). 018883 332260.

In recent years Excepted Group Life Policies have become more popular and as such the following may be useful in order to provide a basic comparison between these and the traditional Registered Group Life schemes. It is not meant to be exhaustive and is based on our current understanding of legislation which can change without notice.  It is not a recommendation for changing any existing arrangements and professional advice should always be sought prior to making any changes to any such arrangements.

  Registered Group Life Scheme Excepted Group Life Policy
Basic requirements Established using a trust deed and then registered with HM Revenue & Customs


Once registered, a Group Life Assurance policy is set up

A Discretionary Trust deed is established the only asset of which will be the excepted group life policy

The policy must meet certain conditions to qualify as an excepted policy which are:

–  A minimum of 2 lives must be covered
–  It must provide for a capital sum payable on the death of a person included in the policy before age 75
–  The same method is to be used for calculating the capital sum payable for all persons included in the policy
–  It cannot accrue a surrender value
–  No other benefits can be payable other than the capital sum
–  The capital sum must be paid at the discretion of:
a)   An individual or charity beneficially entitled to them, or
b)   A trustee or other person acting in a fiduciary capacity who will ensure the sums are paid to the beneficiary

Tax avoidance is not the main purpose or not one of the main purposes, for which a person is at any time:

a)   A holder of the policy, or
b)   A person beneficially entitled under the policy

Minimum number of lives at outset 2 2
Who can be covered? –   Employees of an employer

–   Equity partners if the partnership also has employees that are covered

Anyone can be included but often insurance companies require a link via employment or partnerships
What benefits can be provided? A lump sum and/or dependant’s pension payable on death only A lump sum only which must be the same for all members, payable on death only
Lifetime allowance (LTA) charge –    Lump sum and retirement pensions paid are assessed against the LTA

–    Benefits that exceed the LTA are subject to a tax charge

–    Death in service pensions do not count towards the LTA nor are assessed against the LTA

The LTA does not apply
Income tax –    Lump sum benefits are not subject to income tax

–    Dependents pensions treated as earned income

Lump sum benefits are not subject to income tax
Inheritance tax Benefits are not subject to Inheritance Tax Schemes are subject to the normal inheritance tax rules that apply to discretionary trusts further details of which can be provided on request
Protection from the LTA Protection may be lost in certain circumstances eg if a relevant benefit accrual is made in a registered pension scheme or if an individual joins a new registered pension scheme. Different rules apply for each form of protection further details of which can be provided on request Membership of an excepted policy has no affect protection
Tax avoidance Not applicable as schemes obtain tax privileges through registration Tax avoidance must not be the main purpose, or one of the main purposes, for the policyholder or one of the persons entitled to benefits under the policy